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White Paper – Deciding Upon Success: June 2015 Page 1 of 22 Governance as a Long-Term Solution for Integration
Deciding Upon Success: Governance
as a Long-Term Solution for
Integration
White Paper
MADIHA KHAN, MPH Senior Associate
MARCIA WHITE, MPA Senior Associate
ERICA LINDQUIST, MBA Staff Associate June 2015
White Paper – Deciding Upon Success: June 2015 Page 2 of 22 Governance as a Long-Term Solution for Integration
TABLE OF CONTENTS Introduction .................................................................................................................................... 3
Alignment vs. Integration ............................................................................................................. 4
Why Governance? .......................................................................................................................... 5
Governance in its Many Forms .................................................................................................... 7
The Federated Governance Model .......................................................................................... 7
The Committee-Based Model .................................................................................................. 8
Hybrid Integrated Structure .................................................................................................. 12
Fully Integrated Model ........................................................................................................... 13
Operationalizing the Framework ............................................................................................... 16
Conclusion ..................................................................................................................................... 21
References: ................................................................................................................................... 22
White Paper – Deciding Upon Success: June 2015 Page 3 of 22 Governance as a Long-Term Solution for Integration
INTRODUCTION
Even before the advent of health reform and its ever changing impacts on provider groups,
hospitals/health systems and private practices alike have put forth significant efforts toward
strategic planning. Now, with the combination of regulatory challenges and the continuing
downward economic pressures, a distinct insecurity has been mounting within physician groups,
hospitals, health systems and payers. In recent alignment and clinical integration transactions,
we sensed heightened levels of anxiety coupled with excitement as distinct provider
organizations decided to “team up” and forge ahead on mutually agreeable grounds to combat
an uncertain healthcare backdrop. In many cases, these recent engagements entailed
renegotiations of existent contracts wherein the arrangements needed to be elevated to
account for recent changes in healthcare such as expensive information technology systems,
value-based reimbursement models, greater emphasis on quality measures, pressures to reduce
costs, increasing consumerism, and looming changes around new coding methodologies.
With the face of care delivery drastically and rapidly evolving, three notable trends have become
very apparent in the alignment space:
1. Succession planning is a growing consideration (for physicians and administrators
alike)
2. Independent physicians who are seeking to align with a hospital partner are more
preferential toward maintaining oversight of their entity’s day-to-day functions
3. Hospitals/health systems are finding themselves at a chasm between delivering the
best care to their patients and the ability to elicit enough input and services from
the medical providers caring for those patients
These trends are indicative of the increasing importance of governance as a vehicle for
establishing a workable, responsive and long-term partnership. In general, governance is the
process by which an entity’s overarching decisions are made and its strategic direction, short-
and long-term goals, and the monitoring of same are achieved. While connected, governance
and management have significant differences. The former is the process by which an
organization’s purpose and guidelines for operations are determined whereas the latter focuses
on the administration of those pre-established policies through day-to-day functions. The
monitoring bodies and the authorities of same under governance and management are also
quite different. Typically, governance is performed by a Board of Managers/Directors (“Board”)
charged with the task of handling the business affairs of the entity, which encompasses key
decision making as it relates to strategic planning, financial stewardship, establishing and
enforcing accountability, operational guidance, etc. Sub-committees under the Board may also
be included in a governance setting to provide the Board with recommendations for
consideration across various areas. Conversely, management is enforced by a group of
administrators, typically led by a chief executive officer.
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Despite their differences, both topics fall under the same category during the development of
an effective transaction structure. Thus, the focus of this paper is on the myriad ways
governance models can be organized to transform a viable alignment model into a fully
functional and sustainable integrated strategy. Before this discussion can take place, however,
we first briefly explain the differences between alignment and integration.
ALIGNMENT VS. INTEGRATION
“Alignment” and “integration” are often used interchangeably in literature, but in practice, they
are two very different schools of thought. Alignment is the strategy that legally and
economically binds at least two distinct groups to work together. On the other hand, integration
is a term often associated with healthcare in the 1980s and 1990s when health systems built
integrated networks to counteract impending capitation models. Today, however, integration
refers to the formation of high functioning provider network systems tightly tethered by cultural
and clinical ties. These integrated, collaborative systems can include just independent physicians
or a combination of both hospitals and private practices that share relevant clinical data in
virtually real-time in order to coordinate care, make necessary patient care decisions and
improve the system through feedback loops.
Alignment models span the continuum of various integration levels depending on how culturally
and clinically bound the various affiliated parties are. They are not mutually exclusive and, often,
alignment precedes integration (both clinical and financial) and, thus, sets the foundation for
the successful operations of a clinically integrated model. The figure below provides a snapshot
of the differences and overlaps in the two concepts.
Figure I: Alignment and Integration
Alignment
• Legal and economic ties
• Can range from loose affiliations to highly integrated relationships
Integration
• Cultural and clinical ties
• Entails a high degree of interdependence
Common goals
Accountability
Joint decision making
Data sharing
Trust
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More involved (or more integrated) forms of alignment call for the synchronization of each
group’s operations, strategic plans, relations, and overall delivery of care. This type of an
operational model can be achieved through “traditional alignment” strategies that entail full
levels of integration (i.e., employment). However, even under this scenario, a long-term plan is
necessary to evolve the traditional model to a contemporary one. More specifically, there is a
substantial need today for providers (whether traditionally aligned or not) to form collaborative,
clinically integrated models. The objective is to not only bring primary care and specialty
providers closer together but bring physicians into the fold when making certain major decisions
that impact the value of care being provided. The challenge lies in shifting a responsive strategy
from being a short-term plan to a long-term solution. In technical terms, this entails bridging the
gap between traditional alignment (short-term) and clinical integration (long-term).
WHY GOVERNANCE?
Arguably, governance is second only to compensation when it comes to structuring a successful
transaction between affiliating parties given that it is often a complex area to discuss and build
consensus around. This is especially the case when an alignment transaction involves a group of
private physicians and a hospital partner as these physicians are used to a high level of
independence and autonomy, which they often prefer to maintain post-transaction; however,
this could clash with the hospital’s existing by-laws and potentially threaten the prospective
partnership. Thus, governance is a matter that is often discussed at the outset during transaction
structuring not only due to its level of significance but also for its level of intricacy.
More externally, the need for strong leadership, both clinically and administratively, in every
provider organization is exacerbated by an aging physician workforce. Thus, the imperative for
grooming “junior” physicians to become leaders can also be addressed through an effective
governance structure.
Looking ahead to the development of a long-term strategy, which we recommend, includes the
development of clinically integrated models [such as accountable care organizations (ACOs) and
clinically integrated networks (CINs)]. The success of these “contemporary alignment models” rely
on the positive interplay between the physician and administrative leadership. This interplay can
be fostered by an effective governance structure that allows for joint decision-making, high levels
of trust, communication, and group-minded discussions.
Coker recently worked with a 20-physician, single specialty private practice with a longstanding
affiliation with a local health system. While the practice itself was a separate legal entity, the
physicians and staff were employed by the health system but both the individual physicians and
the private practice entity operated with as much independence and autonomy as physicians of
a traditional private practice model. With the group’s contract with the hospital nearing
expiration, Coker was engaged to provide assistance with re-negotiations such that the go-
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forward model would be acceptable from both an economic and non-economic standpoint. The
truly distinguishing feature of this engagement revolved around the strong emphasis placed by
the practice shareholders and its administrators on the maintenance of their internal
governance structure. In some respects, the governance issue ranked higher than compensation
in terms of importance to the physicians. This result supported our observation of governance,
or the ability for physicians to make decisions that impact their ability to deliver valuable patient
care, precipitously growing in significance in current and future transactions.
A number of considerations exist when developing a governance structure for a particular
provider organization. Rarely is there a “one-size-fits-all” model, and the final structure will
depend on a host of issues. Some factors include the type of organization, (i.e., hospital, private
practice, employed physician network, independent practice association, clinically integrated
network, etc.), the number of decision makers, the tenure/commitment levels of existent
decision makers, expectations of parties, determination of “reserved powers,” etc. The following
list presents the foundational elements of all sustainable governance models that are applicable
to virtually all healthcare organizations:
Efficiency
Scalability
Flexibility
Simplicity
Transparency
Integration
Synergism
Equal satisfaction (or dissatisfaction) for all members
While the above qualities are conceptually understandable and straightforward, the application
of these components during the structuring and implementation of the actual governance
model can pose some challenges. Although these characteristics encompass the overall vision
and strategy of an effective governance structure, they should flex depending on such things as
leadership styles, size of entity, culture, current structure, and future directions. Thus, a
relatively simple concept can quickly snowball into a more intricate and sensitive issue that may
never move past the planning stage unless all parties involved are brought “to the table” to
openly and constructively discuss the issue of governance with the ultimate goal of deriving a
mutually agreeable model. This will entail deciding upon the specific decision making areas of
each party and the parties collectively, how these decisions will be made and by whom, how will
an accountability/checks and balances system be established and enforced, and how will the
overall model be implemented.
To clarify this potentially complex matter, the subsequent sections provide an overview of
common governance structures. We offer explanations on how these models apply to various
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organizational types, and how they can be utilized to take a short-term plan to the “next” level
and, ultimately, support the long-term strategy. It is important to note that governance is a
valuable feature to every organization but in provider groups, it is especially impactful due to
the interplay between physician and administrative leadership. For this reason, we maintain a
focus on provider organizations throughout the remaining sections of this paper.
GOVERNANCE IN ITS MANY FORMS
Similar to a compensation or income distribution model, governance models can take a variety
of forms. For virtually all provider organizations, a Board structure has prevailed but for many,
the Board’s role evolved over time as the increasing need to control healthcare costs triggered
the incorporation of clinical expertise in the decision-making process. Nonetheless, key
differences in how these decisions are made exist across organizational types. For example, in a
hospital setting, major decisions are often escalated up a vertical “chain of command” prior to
being finalized and implemented. For other organizations, particularly those that rely on a more
rapid decision-making process (such as private practices), a flat (or horizontal) organizational
framework has been more common. Here, the decision makers also take part in the day-to-day
management of the entity.
In present day, these concepts of vertical, horizontal, shared, and transformational governance
are all existent. However, what is likely different today than historically is the creation of the
“hybrid model” that intertwines the above concepts into simultaneous application. The
following models reflect these views across a continuum but stratify each against the
appropriate organizational/alignment model.
THE FEDERATED GOVERNANCE MODEL
The Federated Governance Model is a “pod-like” framework that offers limited authority of any
one party over the other parties or the full entity. This model is most appropriate for a merged
entity of private practices where each independent practice operates exclusive of one another.1
In this model, each practice entity (or pod) has full control over its own management structure.
A Board may exist that oversees the strategic direction of all pods and thus, could consist of all
shareholders of each practice or an equal number of shareholders from each practice. The
Board has the task of setting the strategic direction of the organization but has limited ability in
terms of executing its decisions down to the pod level.
An advantage of this model is the limited number of changes that must occur when adding or
removing a pod from the overall entity. However, when considering the development of a long-
1 Typically, this model is known as a “legal-only” merger where each separate entity comes under one tax ID number
and are thus, legally merged; however, limited to no consolidation of operations occurs.
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term strategy, this structure does not support the key tenets of an integrated model and creates
challenges for members to share a similar vision and mission for the overall organization. Thus,
this governance structure would likely not benefit an organization that is targeting clinical
integration in the future.
Figure 2: Federated Governance Model
THE COMMITTEE-BASED MODEL
The broadly titled Committee-Based Model refers to the variations in structuring an
organization’s decision-making vehicle as a chain of committees under an overarching Board.
Depending on the size (both in terms of members and affiliated entities) and type of
organization, the volume and forms of committees will change. We explain the three main types
of the committee-based structures below, offering three alternatives based on the size and
number of specialties within an organization.
Alternative One: Bifurcated Model
As illustrated by Figure 3, this committee-based model represents one of the least complicated
internal governance structures that is most applicable to small, single-specialty private practices.
This structure is simple in that there are minimal layers between governing bodies, and the sole
notable distinction is a separation of clinical operations from administrative functions, resulting
in a bifurcated committee structure. This layout is not deemed appropriate for multi-specialty
practices or hospitals/health systems that need to oversee and control various operational areas
within one entity.
Limited Joint Governance
Practice 1
Practice 2
Practice 3
Practice 4
Practice 5
Practice 6
Practice 7
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The bifurcated model has utility for small practices in less progressive markets that may desire
to implement a corporate-like governance structure that is reflective of its current capacity. This
model is certainly scalable; however, it can quickly become obsolete if it does not evolve as the
organization and the market change.
Figure 3: Bifurcated Committee-Based Model
Alternative Two: Operational Sub-Committee Model
This second, committee-based option is more commonly seen in larger single and multi-
specialty private practices as well as some employed physician networks (EPNs). This model has
several committees, including an Executive Committee (EC) of the Board. The EC usually includes
a group of Board members assigned to officer roles and the CEO. In addition to the EC, several
other sub-committees that lead different aspects of the business and its operations (e.g.,
finance, IT, clinical quality, etc.) exist. A Board or EC member can lead these sub-committees,
which most often act in an advisory role to the Board/EC.
This model is quite common and has several advantages including scalability and applicability to
virtually all types of organizations. For example, a completely private practice entity could apply
this model as easily as an EPN. This model also allows a diverse group of individuals to partake in
the overall governance of their organization (as opposed to just shareholders). Simply put, a
sub-committee, while led by an individual Board member, could include a membership of non-
physicians, non-shareholding physicians and less tenured members who are all interested in a
specific business area. Not only does this afford the opportunity to solicit buy-in from a diverse
group of constituents, but it also allows for the grooming of less tenured individuals to
Board of Members
President
Clinic Operations
Business Function
Practice Manager
Administrative
Assistant
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eventually take on leadership roles and work with administrative staff in tandem to decide upon
and implement initiatives respective to their committee’s designation.
Lastly, the operational sub-committee structure allows for significant flexibility in that
committees and/or members may be added on an “ad hoc” basis depending on the types of
decisions that need to be made or the initiatives in consideration. While the EC along with the
finance, clinical quality and payer relations sub-committees are usually standing, permanent
governing bodies under the Board, other sub-committees may be temporary and established on
an as needed basis (e.g., an Information Technology sub-committee may be formed if the
organization is considering a new electronic health record system).
Figure 4: Operational Sub-Committee Model
Alternative Three: Specialty-Specific Committee Model
The third committee-based alternative is applicable to large multi-specialty practices,
independent practice associations (IPAs) and EPNs. This model is similar to Alternative Two in
that the operational sub-committees are maintained; however, the main difference is a division
between primary and specialty care for the sub-committee structure.
This model is not commonly recommended as it may create too much of a clinical divide
between the primary care physicians and specialists of an organization. However, from a
strategic and operational standpoint, the needs of both provider classes vary; thus, this
structure would allow governing bodies to manage and monitor those needs accordingly.
Nonetheless, for purposes of transitioning an organization from traditional alignment to clinical
integration, this model would be beneficial for the short-term but should be modified to support
certain key tenets of clinical integration (such as collaborative and collective clinical processes)
in order to be efficacious. The following illustration models the specialty-specific committee-
based structure.
Board of Members
Sub-Committee 1: Finance
Sub-Committee 2: Operations
Sub-Committee 3: ITSub-Committee 4:
Clinical QualityCEO
Executive Committee of the Board (includes
CEO)
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Figure 5: Specialty-Specific Committee-Based Model
For any governance structure that utilizes sub-committees, several areas should be addressed
by the Board as it relates to the size of the committees, the leadership of each (i.e., chair/co-
chair), voting structure and overall membership composition. From our experience, the optimal
sub-committee size is between five to seven members that represent a cross-section of areas of
expertise and tenures. Within a sub-committee, a formal voting process may be unnecessary as
the majority of decisions are likely to be consensus driven. However, in the event consensus
cannot be reached, a majority vote may prevail or the issue/decision may be escalated to the EC
or the Board.
Myriad benefits are offered by a sub-committee model, which can be applied to smoothly
transition a traditionally aligned group of providers into a clinically integrated network of
providers. However, the success of such models (and their ability to transition an organization
from aligned to integrated) is predicated on a culture of collaboration, transparency,
engagement, and open communication (some organizations allow non-governing members to
attend Board or sub-committee meetings to provide input on key issues without participating in
the actual decision making/voting for same). These governance structures may be ineffective for
an organization that is lacking in any one of the above areas.
Board of Members/Directors
Primary Care
Finance
Operations
IT
Clinical/
Quality
Specialty Care
Finance
Operations
IT
Clinical/
Quality
CEO
Executive Committee of the Board (includes
CEO)
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HYBRID INTEGRATED STRUCTURE
The hybrid integrated framework has a shared central governance structure and management
services. This model is appropriate for legally merged entities or moderately aligned provider
organizations, such as IPAs or hospitals and private practices bound by joint ventures or
management agreements.
The hybrid structure entails representation from each of the groups that make up the provider
network within an “advisory board” that then reports to a higher Board structure consisting of
all shareholders (or a subsection of shareholders). This model blends the federated “pod-like”
structure with an operationally integrated structure. This structure allows each separate entity
to continue operating as-is in regard to day-to-day functions and management activities while
sharing governance over specific decision-making areas.
Shared governance and services tend to be in the areas of strategic planning, common
information technology (i.e., electronic health record and billing) systems, contracting
strategies, and expansion/growth strategies. The shared governance areas are overseen by the
advisory board that recommends initiatives and plans for Board approval.
This model is helpful for groups that plan to clinically integrate at some point in the future when
their organization and/or local market is more suitable. In the interim, they are “testing the
waters” and acclimating to working collaboratively. This model is not entirely supportive of a full
operational merger (i.e., when two or more parties consolidate all key operational functions of
their once disparate businesses, such as billing/collecting, payer contracting, human resources,
etc., into a centralized source) due to delineations in management that exist across each
participating provider group. Therefore, it should be considered as a short-term solution and not
a long-term strategy.
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Figure 5: Hybrid Integrated Model
FULLY INTEGRATED MODEL
The Fully Integrated Model is the “end game” structure that should be the terminal goal for all
organizations that wish to remain responsive to the turbulent healthcare landscape. Thus, this
model is applicable to virtually all provider groups, particularly large groups that are utilizing full
forms of alignment currently (i.e., hospital employment, operational merger or professional
service agreements).
The fully integrated structure has a central governing body or bodies for all affiliated groups in
the network. One centralized monitoring Board and EC determine the strategic, financial, and
high-level business functions of all entities. The sub-committee structure may be utilized to
infuse further delineations in authority and decision-making. However, the Board will have
reserved powers in this scenario and will have the ultimate “say-so” on decisions relating to
strategic planning, joint contracting, large capitalizations, system-wide clinical initiatives, etc.
This model is advantageous for its inherent integrated functionalities, which allow for the
achievement of economies of scale. However, it is susceptible to deficiencies if it omits groups
that wish to have a voice in decision-making. When structuring a model of this nature, it will be
pivotal to solicit and ensure reasonable levels of buy-in from the various groups within the
network prior to the approval of enterprise-wide decisions/initiatives. This buy-in process may
result from working through joint management committees and/or a diverse Board
membership.
Shared Governance and Services
Practice 1
Practice 2
Practice 3
Practice 4
Practice 5
Practice 6
Practice 7
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Figure 6: Fully Integrated Model
Given the broad nature of this model and the particular needs of the various types of provider
organizations, this governance structure can be arranged in a number of ways. This section
outlines two common alternatives for the fully integrated model.
Alternative One: Fully Integrated Executive Model
This choice represents a Board–EC–management team model. In many aspects, this model is the
most corporate-like of all those described. However, this is a simple organizational map for
entities/networks that want to apply an executive-based structure to their governance model.
The Board and EC’s tasks are essentially the same as those described above. The C-suite roles
would then be the frontline facing administrative team that oversees the day-to-day functions
of their divisions and the implementation of their respective initiatives (as directed by the
Board).
This model is advantageous due to its commonly known structure and easy to apply
arrangement. Nevertheless, this model is lacking in enterprise-wide involvement (as was
possible using the sub-committee structure) and relies heavily on the placement of highly
qualified and effective individuals within the C-suite roles. The deficit in enterprise-wide
engagement, however, can be mitigated through effective management, communication and
collaboration by the executives, particularly the chief medical officer.
Fully Integrated
Governance
Practice 1
Practice 2
Practice 3
Practice 4Practice 5
Practice 6
Practice 7
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Figure 8: Fully Integrated Executive Model
Alternative Two: Fully Integrated Physician-Led Model
This alternative represents a Board–EC–physician-led committee model. This structure is similar
to the management team model described above in that the executive leadership remains
existent; however, greater emphasis is placed on the physician-led aspect in this structure than
the Fully Integrated Executive Model alternative described above. More specifically, the
executive structure explained above is retained through the utilization of “Department
Directors” who work in tandem with physician leaders who serve as the chairs of the network’s
operational committees.
Thus, this model strikes a sustainable balance between physician involvement and
administrative oversight. Further, it is a model that can be used to groom junior physicians to
take on more involved leadership roles over time. Due to the highly collaborative nature of this
framework, it is an appropriate governance structure for clinically integrated models such as
ACOs and CINs as well as integrated EPNs and operationally merged private practices.
Board of Directors
Executive Committee
CEO
CFO CMO COO/CIO Marketing/ Comm. Director
Human Resources Director
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Figure 9: Fully Integrated Physician-Led Model
When deciding on the optimal governance model for your enterprise, it is always useful to have
a framework in mind that can accommodate the various nuances of the organization. All of the
models described/illustrated within this section are intended to serve as viable conceptual
frameworks for all types of traditional and contemporary alignment strategies. However, the
value of a structure is dependent on the process by which it is vetted and implemented. Thus,
the following section will provide some guidance on successfully conducting the planning and
implementation components of effective governance structuring.
OPERATIONALIZING THE FRAMEWORK
The final planning and implementation stages of governance development are dependent on
the actual junction at which the organization/enterprise is currently. Meaning, a single specialty
private practice that wishes to apply the Bifurcated Committee-Based Model will experience a
vastly different planning and implementation process than a CIN that is targeting the Fully
Integrated Physician Led Model. Nonetheless, both entities should have similar long-term
strategic goals with the timeline being dependent on their individual markets and
financial/operational capacities.
To normalize the variances in methodologies across organizational types is a complex process.
The following six areas represent “tips and tricks” that can be applied by virtually all provider
groups, at any stage in development, to ease the implementation process.
1. Set Short-Term and Long-Term Goals
Setting goals is an important step in building and maintaining a governance model that
will be useful across the lifespan of the organization itself. To establish reasonable and
attainable goals, an organization (through its founders or an established Board) must
Board of Directors
Finance/Contracting Committee
Operations Committee
Clinical Care/Care Redesign
Committee
Membership/Communications
Committee
IT Committee
Executive Committee
Department Directors
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first develop an overall vision that answers these questions: What are we? Who do we
serve? What are our services and standards of care? An organization that answers these
questions will establish its identity within a community, and this will drive the
development of specific short-term and long-term goals. The governance model should
uphold these goals and in most instances, the Board will be tasked with developing and
monitoring these strategies and goals. At this point, some of the short-term goals should
be reflective of the ongoing shift from a predominantly fee-for-service (FFS) market to
blend of FFS and value-based reimbursement. These goals should be reasonably
attainable with the resources currently available (i.e., financial funding, technology,
staffing, etc.) and should be measurable, such that the governing body or bodies can
monitor progress.
Similarly, goal setting should also occur at the lower level governing bodies. For
example, the Finance Sub-Committee could be tasked with setting, monitoring and
meeting cost reduction goals for their organization. Likewise, the Clinical/Quality Sub-
Committee could be tasked with developing, monitoring and achieving patient outcome
goals. These relatively small steps add up to macro-level changes that drive the
organization to think and operate in a “value-generating” manner and also prompt
organization-wide efforts to achieve them, which then, ultimately, narrows the gap
between an aligned entity and an integrated system.
2. Physician Involvement
Currently and likely in the future as well, physician involvement is a non-negotiable
when it comes to the sustainability of a governance model, and more importantly, the
survivability of an organization. The imperative to significantly reduce the cost structure
is applicable to all provider groups regardless of type, size, wherewithal, etc., and the
parties most capable to control the cost of care are those caring for the patients. Thus,
despite the governance framework chosen, some vehicle for soliciting clinical buy-in
should be incorporated. In most instances, clinicians are represented at the Board level.
While this is undoubtedly valuable, clinical expertise should be integrated throughout all
levels of governance in order to drive improvement in both clinical quality and efficiency
(i.e., advance the value proposition).
This is not to say that clinical representation should be the predominant component of
any governance model. Rather, the key to a sustainable model will be to achieve an
appropriate balance between the administrative and clinical aspects. In various cases,
particularly those that consider alignment between hospitals and private practices,
some physicians may be able to offer both clinical and administrative expertise. This
expertise is a significant area of opportunity and one that organizations should capitalize
upon, especially in a clinically integrated scenario. A model that brings these individuals
into the decision-making fold should be a consideration.
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Lastly, physician involvement in decision-making relates a positive message of respect,
trust, and value, which is important, particularly as many private physicians are still
openly wary of hospital partnerships. With the “reserved powers” provision, the
hospital may retain final say-so over certain areas. However, including provider
counterparts in the governance model strengthens the overall alignment relationship,
facilitates the establishment of common strategies and goals as well as the achievement
of same. These all move the organization/partnership closer toward integration.
3. Develop a Transition Model to Respond to the Changing Healthcare Landscape
Today’s providers are asking themselves some unprecedented questions, such as, are
we equipped enough to accommodate large influxes of patients as the number of
Americans with access to health insurance increases? Will cuts in Medicare
reimbursement affect the overall reimbursement rates we are receiving from
commercial payers? Will we be able to sustain our current operations under reduced
reimbursement? Will the push to reduce costs end up costing more?
These concerns and many more are not only valid but necessary to consider when
developing a new governance model amidst the changing healthcare landscape. It is
imperative that hospitals be prepared to deal with the expected, and unexpected,
changes over the next several years during the implementation of the Affordable Care
Act (“ACA”).
A strong governance structure should allow governing bodies to make decisions quickly
when needed1. In these instances, the “flat” model is of great utility as is the
management committee structure (i.e., joint decision-making body between multiple
partnering entities). Thus, when structuring the overall governance structure, there is
value in mixing a vertical governing model with a horizontal decision-making structure.
Simply, certain governance structures can maintain the corporate-like Board with sub-
committee layout, but allow lower level governing authorities to make necessary
decisions readily. Essentially, this applies when they impact the quality of patient care
(i.e., purchase of new equipment or hiring of new staff), provided that they do not
violate the Board’s reserved powers.
4. Develop a Diverse Board Membership with Strong C-Suite Support
Throughout this paper, we have alluded to the Board and its purview, composition,
effectiveness, etc. However, the Board is a crucial governing body both for obvious and
elusive reasons. In addition to setting, overseeing, and assessing the organization’s
strategic direction, the Board has other duties in support of the entity and its long-term
sustainability. It is responsible for reviewing and approving the strategic plan,
monitoring the legal compliance (from a high-level standpoint), maintaining connections
with the community to foster public accountability, providing financial oversight,
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ensuring quality improvement and advancing the mission, vision and goals of the
organization.
The Board members “wear many hats” and thus, its composition should be
representative of a wide array of expertise that can handle the breadth of issues on
which it will need to decide. In most instances, the Board is composed of clinical,
financial, legal, and community representatives as well as shareholders. Board members
are often elected, although some may be appointed and typically serve for limited terms
(i.e., two to three years). The Chair of the Board may rotate on an annual basis. These
rotations in both members and the Chair are necessary to maintain, particularly for
large organizations in order to infuse the Board with the necessary diversity in
perspective, which can certainly benefit long-term sustainability.
In organizations where succession planning is an imminent consideration, the Board
membership should be representative of senior and junior members. In addition, a
diverse specialty mix of both primary care providers and specialists should be
incorporated as much as possible.
For organizations comprised mostly of providers (i.e., private practices, IPAs, etc.), there
is a need to ensure the administrative leadership consists of fully qualified individuals
that are knowledgeable of the local and regional markets as well as the constructs of
fee-for-value and clinical integration. Capable leadership qualities apply most to the CEO
who holds a dual role, serving as an executive decision-maker and as a frontline
administrator.
5. Operational Control
During these times of rampant consolidation, hospitals are acquiring outpatient facilities
in part for the economic benefits they may potentially offer. In many cases, hospitals are
not fully equipped to manage the operational component of these facilities and rely on
the partnering entity’s physicians to have authority over such things as staff, equipment
utilization, operating budgets, etc. When these types of transactions transpire, the goal
is to develop a governance structure that allows the hospital’s governing authorities to
maintain their preferred reserved powers while the new partnering entity’s physicians
retain control over the acquired facility’s operations. Often, this scenario is a mutually
beneficial arrangement, especially if the acquired entities were operationally efficient
prior to transaction close.
6. E-Commerce and Information Technology
With each passing day, consumerism and patient awareness of value-based care are
rising. Instead of being passive recipients of care, patients are quickly joining the ranks
of progressive and educated consumers of care. Through implementation of electronic
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health records (“EHR”) and practice management systems, physicians, nurses, staff, and
patients now all have the ability to communicate with each other, whether it regards lab
results, questions about various symptoms, scheduling appointments, or finding the
right physician for a patient’s medical needs. Technology in healthcare is becoming
more of a necessity and those that are not taking the steps to incorporate and utilize IT
systems and telemedicine techniques in a meaningful way will quickly find themselves
behind the curve.
Both directly and indirectly, the governance structure should embrace technology to
facilitate communication, promote collaboration, and progress the organization toward
clinical integration. The role of IT within a governance structure is to ease the process
for setting strategies, managing risk, delivering value, and monitoring performance2. At
the different levels of a governance structure, the meaning and relevancy of the data
provided through IT varies. At the highest levels of the governance structure, the use of
IT should be for strategic purposes and oversight. For example, in order to ascertain the
organization’s performance and the need for changes in strategy or capitalization, the
Board may review dashboard reports generated by the IT system’s capability to
continuously aggregate of financial data and set against pre-established cost metrics.
Within the various sub-committees, IT is still a relevant matter. For example, a Clinical
Quality Sub-Committee would be remiss if decision making occurred without the proper
review and vetting of relevant clinical data (i.e., patient outcomes, satisfaction,
experience) at both an individual physician and organization-wide level. Without the
utilization of the appropriate systems for data collation and analytic tools, the efficiency
of governing bodies may be significantly hampered. Thus, in the developmental stages
of the governance structure, IT should be considered primarily in the context of which
types of reports/data should be reviewed by each governing body in order to be
effective. However, during implementation phase, IT has more relevance and should
serve as a tool to improve the governance structure’s impact on the overall
organization.
This section outlines various considerations when developing the appropriate governance
structure for a provider organization. Overall, the best governance model for an organization
will depend on its long-term strategy (i.e., remain independent, align with a hospital, pursue
clinical integration, grow and then sell, etc.). This is especially pertinent for existing
organizations that are seeking to revise their current model or engaging in re-negotiations with
their affiliated partner(s). Nonetheless, in terms of vehicles for deciding upon the optimal
structure and vetting the components inherent to the structure, a “Working Group” process is
often recommended and utilized by Coker. This medium entails the establishment of a core
representative group of key physician and administrative leaders from the various parties in
consideration, which then serves as the ongoing decision making advisory body for the overall
enterprise. The complex and sensitive nature of some of the topics call for engaging
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independent, objective advisor to facilitate the meetings. A qualified advisor will ensure that all
considerations are factored, thoroughly vetted, and decisions are made from an educated
position.
Coker has been successful in a number of instances in using the above Working Group process
to establish mutually agreeable transactions (inclusive of the governance structure).
Coincidentally, the process utilizes the fundamental tenets that are advocated for and most
often seen in effective and sustainable governance structures.
CONCLUSION
In consideration of current healthcare trends wherein major payers (both public and private) are
continuing to channel increasing levels of funds toward value-based programs, clinical
integration is often the recommended “terminal goal” for all organizations regardless of
alignment status. Thus, in this scenario, we would recommend the “end game” governance
model be the Fully Integrated Physician Led Model; however, the process to get to such a model
may be gradual with the utilization of different yet complementary models (such as the
Operational Sub-Committee Model) at the outset to ease the transition process. As long as the
final governance structure is supportive of the underlying alignment strategy and overarching
long-term strategy, each model described herein can be tweaked to apply to virtually all
provider organizations. Thus, there is seldom a “right or wrong” structure, but as articulated
herein, not all models are created equal and consideration of several key areas should be given
during the development stage.
It is undeniable that governance is one of the most crucial components of an organization’s
overall structure. An ineffective governance structure may jeopardize the success of an
organization and/or their relationship with their partners. As we near a point in time where
several new or renewed alignment transactions are slated to occur, it is opportune to assess the
current governance model. The objective is to ensure it incorporates the functional elements
that will allow it to serve the organization, as a whole, in the short-term as well as translate into
a long-term solution that is responsive to value-based care for all parties involved. The financial
and non-economic risks of not investing the time and effort to develop a robust governance
structure at this time are too great.
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REFERENCES:
1. Great Boards, Governance Implications of Healthcare Reform, Great Boards Newsletter,
November 1, 2010.
2. Hoehn, Barbara J., Clinical Information Technology Governance: Not Just Another
Meeting, Spring 2010. Accessed May 21, 2015.
http://www.himss.org/files/HIMSSorg/content/files/Code%20130_Clinical%20Informati
on%20Technology%20Governance_JHIM_Spring%202010.pdf
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